Fighting COVID-19 Through Innovative Digital Solutions for MSMEs

“During the Ebola outbreak in West Africa in 2014, more people died from the interruption of social services and economic break-down than from the virus itself’” according to a United Nations’ report regarding the socio-economic response to COVID-19, reflecting on the Ebola Virus outbreak of 2014.

Today, it seems that history is repeating itself.

In March 2020, most African governments implemented various measures to contain the spread of the virus. From shutting down land borders to closing airports, businesses and markets. These containment measures have dire economic consequences impacting all businesses; in particular for micro, small and medium-sized enterprises (MSMEs) that often operate in the informal economy and lack social protection. According to a recent survey carried out by UNCDF in West Africa among service providers of financial and non-financial services, the harshest consequences of the crisis will be experienced by MSMEs.

UNCDF conducted this survey among its current project partners and applicants in response to a request for application (RFA) launched in April 2020 for innovative digital solutions to support the resilience of MSMEs during the Covid-19 pandemic and beyond. The objective of the research was to grasp the impact of COVID-19 on the private sector in West Africa , and to guide the work to be carried out among the RFA applicants. Respondents from 39 organizations included financial institutions, microfinance institutions, fintechs and startups offering digital solutions in the region.

The survey results shed some light on the specific barriers and challenges the private sector faces while highlighting the various initiatives these service providers have launched for their clients to adapt to the new normal.

Findings from the survey

72% of the respondents reported a decrease in their revenues in the month of April, compared to their original forecast. Among the service providers working in the financial services and agriculture sectors, this percentage is even higher, with 76% reporting a decrease in revenues. Assuming the situation persists, more than half of the service providers interviewed fear they could be in a critical situation in less than 6 months.

The two major challenges faced by these businesses are decrease in demand (for 38% of the respondents) and cashflow difficulties to meet operational costs (for 28% of the respondents). In the agriculture sector, half of the respondents face harsh cashflow difficulties. The new situation has also modified staffing modalities, resulting in challenges for around 40% of the respondents, from staff not being able to work full time to staff not being allowed to work in the field and interact with clients.

While these challenges will most probably remain until the COVID-19 pandemic is over, the longer the virus lasts, the more risks businesses will face. Companies predict that continued insufficient demand will be very problematic and anticipate that sustained difficulties of cashflow could eventually lead to bankruptcy. Likewise, the risks of layoffs, delays in reimbursements and reduced access to capital could arise. All of these risks threaten the existence of services providers that are active in rural areas and/or servicing MSMEs in agriculture and commerce.

To palliate for the decrease in demand and revenues, businesses have launched a variety of new initiatives. To provide smooth access to their services, most businesses are working on developing new marketing strategies, which indicate a strong desire to make a digital shift. Similarly, building new partnerships allow retails businesses to increase sales through e-commerce platforms while helping overcome the difficulties that small producers face in selling their stocks. Online sales and cashless payments combined with home deliveries are developing across the region and could support the continuity of business for MSMEs.

Supporting businesses and the resilience of MSMEs

In these times of uncertainty regarding the duration and extent of confinement measures around the world, UNCDF launched in April 2020, a request for applications (RFA) for innovative digital solutions to support the resilience of MSMEs. Initially, the RFA was planned for Benin, Ghana and Senegal. However, Togo was also included in the initiative thanks to a partnership between UNCDF and the UNDP Togo Accelerator Lab.

The objective of the RFA was to collaborate with the private sector in West Africa and to leverage the power of digital technologies for MSMEs. The solutions submitted for the RFA had to target the following objectives:

  • streamline MSMEs existing distribution channels,
  • optimize MSMEs stock management,
  • build online and home delivery distribution channels,
  • integrate digital payments, and
  • leverage other digital solutions and apps for better efficiency and revenue generation.

What next

Within a week of posting the RFA, the responses to the initiative were encouraging. Indeed, over 100 participants joined UNCDF and UNDP webinars to ask questions related to this RFA and, across the four countries, 87 companies submitted their applications. Since then, seven solutions were selected in the first round of investments, ranging from digital payments, e-commerce and digital tools for MSMEs to agribusiness market platforms and customized MSME insurance solutions. With the seven winners, UNCDF expects to contribute to the resilience of 8,160 MSMEs, while servicing 245,000 customers.

Through the RFA, UNCDF received an aggregated funding request of US$2.4 million. So far, US$400,000 has been funded, leaving a funding gap of US$2 million to support an investable pipeline of 42 innovative digital solutions for MSMEs. Private sector actors have already developed digital solutions and identified the missing funding requirements in order for them to speed up their digital shift towards servicing MSMEs.

UNCDF is committed to continue fundraising to support private sector driven innovations and contribute to the resilience of MSMEs during this pandemic and beyond.

For more findings on the survey and the RFA go to our Infogram here.